Master Consolidated Corp. v. BancOhio Natl. Bank

• Decision Date: 28 August 1991
• Docket Number: No. 90-1388,90-1388
• Citation: 575 N.E.2d 817,61 Ohio St.3d 570
• Parties: MASTER CONSOLIDATED CORPORATION, Appellant, v. BANCOHIO NATIONAL BANK, Appellee.
• Court: Ohio Supreme Court

Page 570

61 Ohio St.3d 570

575 N.E.2d 817

MASTER CONSOLIDATED CORPORATION, Appellant, v. BANCOHIO NATIONAL BANK, Appellee.

No. 90-1388.

Supreme Court of Ohio.

Submitted April 17, 1991.

Decided Aug. 28, 1991.

SYLLABUS BY THE COURT

In order for a principal to be bound by the acts of his agent under the theory of apparent agency, evidence must affirmatively show: (1) that the principal h eld the agent out to the public as possessing sufficient authority to embrace t he particular act in question, or knowingly permitted him to act as having such authority, and (2) that the person dealing with the agent knew of those facts and acting in good faith had reason to believe and did believe that the agent p ossessed the necessary authority. (Logsdon v. ABCO Constr. Co. [1956], 103 Ohi o App. 233, 241-242, 3 O.O.2d 289, 293, 141 N.E.2d 216, 223, approved.)

The complex series of transactions that gave rise to this appeal has its origin in the actions of Curtis W. Roney ("Roney"). In 1982, Roney, employed as a business consultant by Philips Industries, Inc. in Dayton, Ohio, learned from Charles D. Lowe (an attorney friend of Roney) of an opportunity to purchase the assets of Master Consolidated, Inc. Master Consolidated, located in Dayton, Ohio, was a division of Koehring Company, a publicly owned corporation based in Brookfield, Wisconsin. Master Consolidated had been in the business of manufacture and distribution of construction tools and equipment since the 1940s.

At first, Roney planned on purchasing Master Consolidated with his personal funds along with those of commercial lenders. Appellee BancOhio National Bank verbally committed to lend some of the additional funds that would be needed to finance the Master Consolidated acquisition. Now consumed with the project, Roney left Philips Industries and began to devote more of his time to the planned acquisition. Shortly thereafter, Roney was contacted by the controller of Hereth, Orr & Jones, Inc. ("HOJ"), an investment banking firm in Atlanta, Georgia with whom Roney had had prior business dealings. HOJ was interested in Roney performing some consulting work and Roney agreed to travel to Atlanta to perform the work.

While in Atlanta, Roney mentioned the Master Consolidated project and learned that Jack Hereth ("Hereth"), a principal in HOJ, had formed Futra Industries, Inc. ("Futra") to invest surplus funds of HOJ in deals like the Master Consolidated acquisition. Eventually, Roney decided to step out of the picture as a prospective purchaser and allow Futra, with its greater financial resources, to pursue the acquisition. Roney informed G. Thomas Burgulis, a BancOhio Vice President, of Futra's proposed involvement by letter dated March 21, 1983. The change was approved by BancOhio.

On February 17, 1983, appellant, Master Consolidated Corporation ("Master"), was incorporated for the purpose of purchasing the Master Consolidated assets from the Koehring Company. Futra was Master's sole shareholder and Hereth was Master's sole director. The officers of Master were, among others, Curtis Roney, President, Phillip R. Bordenkircher, Vice President, Richard F. Glueckert III, Executive Vice President, and Charles D. Lowe, Secretary. ^{1 1} The acquisition of Master Consolidated's assets (the "Koehring acquisition") closed on April 25, 1983.

The Koehring acquisition was financed by BancOhio. BancOhio made two loans to Master totalling $866,000 that were secured by the fixed assets Master was purchasing, i.e., machinery, equipment, and real estate. The remainder of the $1,200,000 purchase price for the fixed assets came from a revolving credit agreement secured by the accounts receivable and inventory Master was acquiring, $350,000 of which was advanced to Master at the closing.

In an effort to refinance Master, Montgomery County, Ohio and Master entered into an agreement (the "bond agreement") on August 1, 1983, pursuant to which the county issued industrial development revenue bonds, sold them to HOJ, and loaned the proceeds to Master. ² Richard F. Glueckert III, President of Futra and Executive Vice President of Master, executed the bond agreement. Charles Lowe, as Secretary of Master, certified a resolution duly adopted by Master's Board of Directors on August 1, 1983, giving Glueckert the authority to do the following: execute and deliver the bond agreement with Montgomery County (issuer), execute and deliver a promissory note to Montgomery County for repayment of the loan, execute and deliver a mortgage and security agreement with the trustee (BancOhio), and "execute such other instruments and agreements, and * * * perform such other acts, as in his judgment may be necessary or appropriate in order to effectuate the issuance of the Bonds and the intent and purpose of the foregoing resolutions." On that same day, a trust indenture agreement was entered into by the county and BancOhio in which BancOhio became trustee of the funds ("bond construction fund") raised by the bond issuance.

Among its other responsibilities as indenture trustee, BancOhio was to make disbursements from the bond construction fund upon presentation by Master of certain documents specified in the bond agreement. One of the documents presented to BancOhio at the bond closing, on August 31, 1983, was a Request and Certificate for Payment No. 1 ("Certificate # 1") executed by Glueckert, requesting BancOhio to disburse bond proceeds in the total amount of $1,423,290.10. Out of this amount, Glueckert instructed BancOhio to wire $489,532.68 to Futra. However, the preliminary offering statement for the bonds clearly stated that only $140,000 of the bond proceeds was to be paid by Master to Futra in order to reimburse Futra for expenses incurred in connection with the acquisition. Thus, $349,532.68 is the figure that appellant Master alleges as the excess amount of bond proceeds that should not have been disbursed to Futra.

Neither Master's President Curt Roney nor Master's Vice President Phillip Bordenkircher was present at the bond closing. Although both knew that the bond project was being discussed, neither apparently knew about a closing until the day of the deal, when Futra representatives appeared at the plant and so informed Bordenkircher.

It was not until mid-January 1984 that Roney learned that Futra had received the additional $349,532.68 in bond proceeds. On January 16, 1984, Roney and Lowe traveled to Atlanta, Georgia to confront Hereth and to demand a return of the $349,532.68. Due to Futra's own financial misfortunes, Futra was in the process of liquidation when Lowe and Roney arrived at the offices. Hereth told them that Futra had indeed received the money, spent it, and would not return it. The next day, Roney and Lowe met with Geoffrey M. Eagleson, a BancOhio commercial lending Vice President, in Columbus, Ohio, to inform him of the events that had transpired.

In an effort to salvage Master from Futra's liquidation, Roney entered into negotiations with Hereth to purchase Master's stock from Futra. Roney, through his wholly owned corporation, Commercial Planning Corporation, acquired the Master stock on February 3, 1984. In conjunction with the purchase, Roney executed a release purporting to relieve Futra and Hereth from all indebtedness to Master, including apparently any indebtedness attributable to the alleged wrongful disbursement from the bond construction fund. The release, however, was apparently invalidated in Master's subsequent bankruptcy hearings for failure of consideration.

On August 1, 1984, Master demanded that BancOhio return the excess bond funds wired to Futra almost one year earlier. The demand was refused.

On August 31, 1984, Master filed a complaint premised on negligent disbursement of proceeds from the bond construction fund against BancOhio in the Montgomery County Common Pleas Court. The case was dismissed without prejudice on January 27, 1986 and then refiled in the same court on December 22, 1986.

The case was referred to a referee for a hearing, which began on October 11, 1988. On February 6, 1989, the referee filed a report recommending that judgment be entered in favor of appellee BancOhio National Bank. Appellant Master filed timely objections and, on July 25, 1989, the trial court issued a decision adopting the referee's report.

On May 17, 1990, the Court of Appeals for Montgomery County affirmed the judgment of the trial court.

This cause is now before the court pursuant to the allowance of a motion to certify the record.

Shulman & Hall, L.P.A., Thomas G. Kramer and Elizabeth O. M. Troxell, Talbot & Ducker and John T. Ducker, Dayton, for appellant.

McFadden & Winner, Joseph C. Winner and Melodee S. Kornacker, Columbus, for appellee.

HOLMES, Justice.

Master has appealed to this court on the grounds that BancOhio, as trustee, acted negligently in disbursing monies from the bond construction fund without conducting an independent investigation of the propriety of Glueckert's request for disbursement. Specifically, Master argues that BancOhio dealt with Master's purported agent, Glueckert, at its own risk, that BancOhio should have exercised diligence and prudence to ascertain the authority of such purported agent prior to disbursing bond proceeds, and that because it failed to do so, BancOhio should reimburse Master for the misdirected funds. Before addressing this issue, we must initially consider whether Glueckert had the authority to request the disbursement of bond proceeds from BancOhio and to direct the payment of these proceeds. After reviewing the pertinent documents and peculiar circumstances of this case, we find that Glueckert did have authority to bind Master.

The relationship of principal and agent, and the resultant liability of the principal for the acts of the agent, may be created by the express grant of authority by the principal. Absent express agency, the relation may be one of implied or apparent agency. As the ...